Interview with Michael Green, CEO, Svenska Handelsbanken Sweden

Well, today I’m with Michael Green, head of Handelsbanken Sweden, to discuss the bank’s dedication to customer service and the other features which make the bank so unique. Welcome. Nice to have you with me.

Thank you so much.

Let’s start with the second-quarter results, which have been described by some as the bank’s best ever set of quarterly results. What would you say, Michael, are some of the key factors that have contributed to such a great performance recently?

First of all, I’d like to say that we’ve been able to deliver quarterly results very stable throughout all of the financial crises. So this is just another quarter in that mode, if you wish. I’d say the answer lies into the way we do our business. In the way our business model works. I mean by that that we have a total dedication within our branches, with our branch network, to make decisions locally and to choose which customer they want to bank with. And by doing that, you know, for many, many years, we have created very skilled people out there managing their own businesses locally. But if you look into the second quarter in detail, you’ll see that we’ve been able to, despite the lowering rates in Sweden, which is actually on the negative side right now, we’ve been able to offset that with high lending volumes in the bank. Mainly throughout outside of Sweden. And we had a pretty good year in terms of net-fee income. And if you look into the fee-income side, it’s mainly driven by the asset-management side. But we’ve had a lot of success actually the last couple of years, sorry, with that. We take market shares in a pretty good way right now. And that shows in the numbers.

Thinking in kind of detail of those numbers, 2014 was quite challenging—operating profit, net-interest income both falling by 3 percent during the year. The first half of 2015 has delivered something of a recovery with operating profit rising by 7 percent compared to the mid-year in 2014. What’s been the main driver of that turnaround?

What happens in the bank when you get pressure on the income side driven through the net-interest income, what happens is that the local branch manager seeks other alternatives and other businesses that he or she wants to try. And what happened last year and this year is that you can shift a little bit from the loan side to work with the savings side. And by doing that you focus on the savings and the customers, and we’ve been able to really do that in a good way. Secondly, what happens is, if your income has a lot of pressure, you obviously have to take care of your cost side. So the branch managers together with our staff work very closely and very sharp actually by being a little bit more efficient as they go along. So it’s focused on the savings side, and the cost side. And if you look at the savings side, I’m just a little bit proud of the results we see in our mutual funds that we have had net flows last year of over 26 percent of the market. And we have a normal market share of roughly around 11. So that’s a good thing. So focus on alternative income and cost side, that’s what happens.

But in the introduction I talked about the kind of levels of customer satisfaction, and that lies at the heart of the bank’s ethos in many ways. Would you say this focus on customer service is the principal reason why profitability has been consistently above its peers?

I think in any corporate business you have to focus on customers, right. Customers and customer satisfaction, that is on top of everyone’s mind. But, of course, it is not that easy, not as simple as that. You need to be efficient in the way that you deliver service and products to our customers. I think we’ve been able to do that. But as I said, focus on customers, customers’ needs and customer satisfaction.

And you’ve already mentioned, Michael, this kind of autonomy that individual branch managers have. And that decentralized approach which Handelsbanken takes toward customer service, how easy is it to actually monitor the individual branches’ performance to ensure that they are delivering those results?

It’s actually pretty easy. We tend to do it in a very easy way. We measure branches just by the cost-to-income ratio. We can also measure how satisfied the different branches’ customers are. I think it’s very easy, actually. We tend to do it as easily as we can, because you can always do a lot of fancy things in kind of how you monitor and how you follow the branches. And I think that’s not really doing anything for us. So we try to keep it very simple.

Another feature of the bank is, Handelsbanken is well known for consistently refusing to take any offers of government assistance, even in the aftermath of the global financial crisis. What’s the reasoning behind adopting such a staunch policy?

It’s our belief that banks should cater for its own needs and not be a burden for taxpayers. And we recognize and understand that getting cheap funding, short-term funding from central banks, could have a possible impact on the PNL. But I don’t think that that drives value creation over time.

You took over the role of head of Handelsbanken SE this year. Prior to that you were head of the capital markets operation, a position you’ve held since 2011. In terms of your responsibilities, has there been much overlap between those two roles for you?

I wouldn’t say overlap. I think, though, that being able and having the possibility to move around in an organization is often a very good thing. Because you learn a lot about the different angles of your organization and what really drives different areas. And you get a good sense of the product range and how things work. So I think, you know, getting the chance to move around a little bit is actually very, very good.

And are there any lessons from your previous role that you’ve brought to bear in terms of your new role?

When I worked in the investment-banking area, in the asset-management area, obviously they’re very focused on activity. So they need to, you know—when you wake up in the morning, you need to do a lot of transactions to really get the income. I think I probably take a little bit of that with me into my new position, working with the branch network—activity, focus and work with the customers.

And one of the things we always have to touch on is the impact of technology, banking technology. Has that changed the way you approach delivering customer satisfaction?

When we asked the customers how they like and take care of, take part in our digital platforms, and they are very, very happy with how that works. We have the branch as the hub. But we extend that by delivering platforms like the smartphones and the Internet for the customers to really take action and do their banking whenever they like to do it. I think that actually is a great service and more availability for the customers to do business with the banks. I think that provides an even higher customer satisfaction going forward.

Now, I talked about some of the other features that make the bank quite distinctive. One of those is the principle of not paying workers bonuses but rewarding them by a share of profits through Octagon, the foundation, which owns a portion of Handelsbanken shares. Now they can’t access that until they turn 60. So in a bonus-dominated culture like banking, how difficult is it to retain employees for the long term when other banks could potentially say actually, “Join us. We’ll give you a bonus straight away; it’s more lucrative and it’s more immediate”? How does that work?

It works very well, actually. And when I talk to the new employees that got onboard with Handelsbanken, I recognize that nowadays, even more than before, they value corporate culture very, very highly. And when we talk about the belief in the people working with Handelsbanken—the right to make decisions, the right to be part of the development in the local branches, and not paying bonuses and not being a burden to society in general—I think that’s very good for the people coming out from the universities to really adapt to that. I think, you know, corporates with strong cultural values are going to be winners in terms of recruiting new staff. I don’t see that as a problem at all for us.

Now to date, you’ve also resisted the kind of call-center approach to customer service, which many, many of your competitors have already deployed. How important has it been for the overall effectiveness of the bank for customers to have that direct link to their bank managers or more qualified members of the bank staff in order to receive assistance?

Listening to customers, they’re very happy when they get things solved when they call their contact within the branch and all that. I think that’s a very efficient way of dealing with customer problems or things that need to be done. But on the other hand, of course, we, in Sweden at least, we have had 24/7 service for customers when we’re not staffed in branches on weekends and nights and so on. So I think that’s just a help for the branch to get the customers to contact us and get the service they need. But the primary way of solving our customers’ needs are within the branches, and I think that’s pretty effective. For us, at least.

Now thinking about the kind of broader society, how important is corporate social responsibility to Handelsbanken, and what are some of the initiatives that you’ve been involved with recently?

Well, working with CSR issues and being a good part of the society lies very deeply into our corporate culture. We try to manage on our own. We do not pay any bonuses for our staff and senior management. The direct impact on the environment for a bank is not that high, but we try to do small things in terms of being efficient and also try to buy, for example, green electricity for our branches. Small things that we can do. But we also need to be aware of and work very closely with our corporate customers and understand their impact on the environment and try to work together with them to develop their businesses because there’s a change. If you’re good at that, you can have a good prospect going forward. And if you’re not, if you do not work hard on the environment side, I think you take a lot of risk. So we work very closely together with our corporate customers to manage that.

Talking about the society, the community that the bank operates in, you are, in fact, you have over 460 branches throughout Sweden. As head of the operation, do you ensure that each and every branch in the country is given your attention? If so, how on earth do you go about overseeing such an extended network?

I think the attention that the staff needs is not from me, actually, it’s from their branch managers and the customers. That’s how it works. I try to visit as many branches as I can to really talk to the staff meeting customers and get input on product things, what they think should be, could be done better in the bank, and so on and so forth. But I mean in general they are very autonomic, if that’s a word you can use, in terms they take care of themselves in the local market. And the attention should be from the manager and the customers.

We’ve mentioned the global financial crisis. And Handelsbanken managed to emerge from that relatively unscathed. Especially when compared to other European banking giants. How did that happen?

Well, first of all, I think we have a very conservative way of looking at risks. We don’t like market risks. We don’t like liquidity risks. We don’t like macro risks. We tend to like, sorry not tend, we like to take credit risks by minimizing the market risks in general and creating a very stable foundation in terms of our balance sheet. We have a good way to fund ourselves, a cheap way of funding ourselves, and we’re not getting that volatile. And we’re also very focused on getting the right customers involved, because we are as good as our customers.

Finally, you’re now head of Handelsbanken in Sweden. What goals do you hope to achieve in that role?

Actually, you know, when we talk about Handelsbanken in Sweden, the goal is that every branch, they have their own goals, and that accumulates to a goal for Sweden. But in general I say that since we’re a big part of the bank, we … my goal is actually to be contributing to the bank’s overall goal, which is to have a higher return on equity than the average of our peers because we need to do that in Sweden, obviously. It’s been such a big part of the bank. But also to, obviously, have more customers onboard, and more satisfied customers. And why not open a few branches more?